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Emigration from Hong Kong to Singapore: The Importance of Migration Tax Planning (5)
6 3月 2020
Singapore has been considered a hitherto rival of Hong Kong in many respects. Singapore has roughly 65% of the area of Hong Kong and 75% of the population count. Both are highly developed international financial centres and regional logistic hubs. Both adopt the common law system, with a rather simple, single-tier tax regime. Despite of the many striking similarities, there are differences. Among them, the most apparent distinction is that Singapore is an independent sovereign state, which might be the explanation why it is becoming one of the popular emigration destinations for Hongkongers amid recent social turmoil and the coronavirus plague. Singapore is particularly attractive to working professionals (financial services professionals in particular), as well as entrepreneurs eyeing expansion of his/her business and investment portfolios. A trend of expatriates from China migrating and moving their assets to Singapore is also observed for similar reasons.
In the six months ended 31 December 2019 alone, Hong Kong underwent a net outflow of 28,500 residents, the largest since the end of 2012. The same trend was observed in capital flow, with Singapore seeing an estimated USD4 billion inflow from Hong Kong from April to August 2019.
How to Become a Singapore Citizen / Permanent Resident
Singapore offers a number of pathways to citizenship through permanent residence, covering family, study, business innovation, investment, and employment.
1. Investment visas – the “Global Investor Programme” (GIP)
The criteria for investment migration is relatively high, particularly after substantial overhaul to the GIP which will take effect from 1 March 2020. The main applicant will be required to fulfil either one of the following:
- at least 3 years entrepreneurial or business track record, running a company with an annual turnover of at least SGD200 million (roughly USD143.07 million as at 26 February 2020);
- whose immediate family owns a 30% shareholding in a company with an annual turnover of at least SGD500 million (roughly USD357.63 million as at 26 February 2020);
- founding a company with SGD500 million valuation and invested in by reputable venture capital firms; or
- being a family office principal with at least 5 years entrepreneurial, investment or management track record, and net investible assets of SGD200 million.
This represents a substantial tightening of criteria from the previous 3-year experience and SGD50 million (roughly US$35.76 million as at 26 February 2020) annual turnover requirements, and a much higher threshold than most other popular jurisdictions.
In addition, the main applicant will be required to invest at least SGD2.5 million (roughly US$1.79 million as at 26 February 2020) in either a new business entity or the expansion of an existing business operation, or a Global Investor Programme (GIP) fund.
2. Employment Pass
While Singapore has a relatively higher investment migration threshold than the other popular destinations, its employment pass has the advantage of allowing its holders to work overseas for the Singaporean employer.
Whilst the respective websites of the Immigration and Checkpoints Authority and the Ministry of Manpower have set out some basic requirements, in practice applicants have been required to be engaged in specific industries (which changes from time to time depending on the prevailing administrative preferences), receive a salary well above the published threshold, and wait for such number of years roughly commensurate with the salary level.
For the time being, as it is observed the government is trying to boost (among others) the technology and financial services sectors, executives engaged or with experience in these sectors are believed to have an upper hand. However, potential applicants are encouraged to seek help from migration experts on the most updated policies and practice.
3. Citizenship
With a few exceptions, a permanent resident is generally eligible to apply for citizenship after having been granted residency for 2 years.
Unlike other popular migration destinations, there are notable differences between the respective rights and duties attached to Singapore permanent residency and citizenship. The most important is that renunciation of all other nationalities is a precondition for grant of Singaporean citizenship. Citizenships also receives different rates of subsidies in education and medical treatments from permanent residents.
4. National Service Liability
Those with male children or planning to have kids must pay attention to the national service (NS) liability (colloquially known as military service) of male citizens as well as permanent residents. While first generation permanent residents via (among others) employment pass and investor visas are exempt from NS, the second generation male citizens and PRs (i.e. the sons of the exempted first generation migrants) are not exempt and will be required to register for NS, even if the latter resides in another country.
Being enrolled in a university, whether in Singapore or overseas, is not by itself a ground for exemption or deferment of NS liability.
Singapore does not treat lightly those who are perceived as attempting to evade NS liability, even where the individual concerned has not lived in Singapore for an extended period. Once the individual travels to or through Singapore, he will be arrested, charged and imprisoned for a substantial period (usually counting by years or half-years, rather than weeks). Singaporean law also forbids renunciation of citizenship by a male citizen unless he has completed his NS.
The Singaporean tax system
Singapore and Hong Kong have a limited double tax agreement (DTA) which only covers air and marine transport operations and services.
On the other hand, a number of factors make Singapore a preferred destination for those who or whose business generates substantial cross-border income:
- Singapore only taxes income accruing in or derived from Singapore, or received in Singapore from outside Singapore (more on this below);
- Singapore has its effective corporate tax rate capped at 17% (with further relief in the first 3 years of operation for Singapore tax resident companies) and individual income tax rate capped at 22%; and
- Singapore has no tax on capital gains and dividend distributions, regardless of source. There is also no estate duty.
Pre-Migration Tax Planning
Given (i) the largely territorial taxation on income earned by individuals; and (ii) the absence of taxation on capital gains, dividend and estate, there is not much pre-migration tax planning to do at the individual level. On the other hand, employment pass holders must bear in mind that if he fails to stay in Singapore for an extended period of time (at least 183 days per year), his employment income from his Singapore employer is subject to non-resident tax rate, which is substantially higher than the resident tax rate.
The focus of pre-migration tax planning will be at the corporate level. For a cross-border conglomerate looking to set up its headquarters or holding company in Singapore, particular attention must be paid to when and what foreign income will be considered “received” in Singapore and therefore subject to profits tax. As a general rule of thumb, the corporate structure should therefore avoid having foreign income which:
- is remitted into Singapore, or applied to settlement of a debt incurred in respect of a trade or business carried on in Singapore, or spent on purchasing any movable property (e.g. goods, equipment, raw materials) which is brought into Singapore;
- forms an integral part of income deriving from the business of the Singapore entity;
- has not been applied to set off against the overseas losses of the Singapore entity; and
- has not been taxed by a foreign jurisdiction whose headline tax rate is no less than 15%.
A company is considered resident in Singapore if the control and management of the business is exercised in Singapore. This generally refers to location of the board meetings during which strategic decisions are made, or having its executive director or key management personnel based in Singapore.
Conclusion
As seen from above, in terms of taxation Singapore is a relatively friendly jurisdiction to individual investors and executives. Corporations, on the other hand, should seek tax advice prior to moving its headquarters or holding company to Singapore.
OLN provides a range of migration, corporate restructuring and tax advisory services. If you have any questions on the above, please contact one of the members of our Tax Advisory Team.
Disclaimer: This article is for reference only. Nothing herein shall be construed as Singaporean or Hong Kong legal or tax advice, whether generally or for any specific person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.
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